The receptor-like protein tyrosine phosphatase, PTPmu, displays structural similarity to cell-cell adhesion molecules of the immunoglobulin superfamily. We have investigated the ability of human PTPmu to function in such a capacity. Expression of PTPmu, with or without the PTPase domains, by recombinant baculovirus infection of Sf9 cells induced their aggregation. However, neither a chimeric form of PTPmu, containing the extracellular and transmembrane segments of the EGF receptor and the intracellular segment of PTPmu, nor the intracellular segment of PTPmu expressed as a soluble protein induced aggregation. PTPmu mediates aggregation via a homophilic mechanism, as judged by lack of incorporation of uninfected Sf9 cells into aggregates of PTPmu-expressing cells. Homophilic binding has been demonstrated between PTPmu-coated fluorescent beads (Covaspheres) and endogenously expressed PTPmu on MvLu cells. Additionally the PTPmu-coated beads specifically bound to a bacterially expressed glutathione-S-transferase fusion protein containing the extracellular segment of PTPmu (GST/PTPmu) adsorbed to petri dishes. Covaspheres coated with the GST/PTPmu fusion protein aggregated in vitro and also bound to PTPmu expressed endogenously on MvLu cells. These results suggest that the ligand for this transmembrane PTPase is another PTPmu molecule on an adjacent cell. Thus homophilic binding interactions may be an important component of the function of PTPmu in vivo.